Presentation Notes: The Incidence and Depth of Child Poverty in Recession and Recovery: Some Preliminary Lessons on Child Benefits

Presentation Notes: The Incidence and Depth of Child Poverty in Recession and Recovery: Some Preliminary Lessons on Child Benefits

June 6, 2001

Background Notes for a Presentation to the House of Commons Subcommittee on Children and Youth at Risk

by Andrew Jackson, Director of Research

Summary

Early data suggest that the National Child Benefit, in combination with an improving job market, has helped cut the child poverty rate and has reduced the depth of child poverty for working families with children. However, the depth of poverty has continued to grow for non-working families with children.

The data suggest that provincial policies make a significant difference to the incidence and depth of child poverty.

Incidence and Depth of Child Poverty

The National Child Benefit Progress Report 2000 (available from www.socialunion.gc.ca) noted that child poverty in Canada has finally begun to fall, and the report assigned some of the credit to the federal/provincial National Child Benefit (NCB) program and some to the economic recovery. As the report itself acknowledged, it is really far too early on the basis of 1998 data - the most recent available - to readily sort out the respective contribution of each of these factors to the reduction in the incidence or depth of child poverty, particularly given that the NCB was in its infancy in 1998. Nonetheless, the NCB did provide an additional $600 Million for spending on child benefits and services in 1998/99 compared to 1997/98 and it is possible to make some preliminary observations.

The two key potential sources of poverty reduction for families with children are changes in income transfers from governments and trends in the labour market. It has long been recognized that the poverty rate is highly correlated to the unemployment rate - rising in periods of recession, and falling in periods of recovery. This is to be expected, since low-income working families will tend to work more weeks in the year and thus have higher market incomes during periods of falling unemployment, thereby pushing some families out of poverty and moving others into less deep poverty.

Income transfers from governments - notably EI benefits and social assistance - can and do significantly lower the poverty rate in periods of both recession and recovery. Poor families with children that have no earnings rely almost exclusively on social assistance (supplemented by some additional child benefits and tax credits), while working-poor families and those close to the poverty line typically depend on a combination of earned income, EI benefits, and social assistance (again, supplemented by child benefits and tax credits). Unfortunately, there has been relatively little research on transitions from social assistance to work, and from work to social assistance or the precise mix of income sources of poor families with children.

CCSD research has shown that one in 10 Canadian children were poor (below the pre-tax LICO) in either five or six years of the six-year period from 1993 to 1998, while one in three children (31%) experienced at least one year of poverty over this same period (The Progress of Canada's Children, 2001, p. 19. CCSD). Children living in low-income households in any given year are about equally divided between the long-term poor - predominantly from lone-parent families reliant on social assistance - and children in working-poor families. Among the latter group, some cycle in and out of low income fairly regularly, while for others, poverty may be a one-time occurrence. Data from the Survey of Labour and Income Dynamics (SLID) show that 75% of poor (post-tax LICO basis) two-parent families with children had at least some employment earnings in 1998, as did 45% of poor lone-parent families.

Most analysts of poverty trends in Canada would agree that the cushioning effect of income transfers to families with children has lessened since about 1993, due to cuts to both EI entitlements and provincial social assistance benefits (see CCSD's The Canadian Fact Book on Poverty, 2000, and Andrew Jackson's "Low Income Trends in the 1990s", at www.ccsd.ca). Meanwhile, there is evidence that the traditional link between recovery in the labour market and the incidence of low income among working-age families weakened somewhat in the 1990s compared to the 1980s. The first beneficiaries of Canada's initially weak economic recovery of the 1990s were middle- and higher-income households, rather than the working poor.

Changes in social policies in the mid-1990s and the NCB in particular were designed to modify the relationship between work and income supports from governments. The NCB, supported by the federal and provincial governments (Quebec does not participate), is designed to promote labour force participation by funding (a) significant income supplements for low-income working families and (b) supports and services, such as child care and extended health benefits, which help parents - particularly single parents - enter the workforce. By providing income supplements and supports to low-income working families with children, the NCB was consciously intended to break down the so-called "welfare wall."

Most of the provinces (but not all) have not passed on the increased federal child income benefits to families with children on social assistance - as provided for in the agreement. Instead, they have invested these funds in provincially designed and delivered programs and services for families with children, particularly low-income families. Some provinces have increased social assistance benefits using NCB funds (such as Newfoundland and New Brunswick) and some, notably Saskatchewan, have introduced their own income benefits for low-income families. The norm has been that provinces freeze or cut social assistance benefits and increase program spending on children using the social assistance funds freed up by the NCB, while the federal government has significantly increased spending on income transfers to working-poor families with children.

As noted in the NCB report, the diversity of approaches at the provincial level will eventually allow for informed judgement about what does and does not work in the fight against child poverty.

The major lesson to date seems to be that there is a welcome trend in the falling incidence of child poverty - which can perhaps be partly attributed to the NCB - but a disturbing trend in the depth of child poverty. This is particularly so in those provinces which most deeply cut social assistance benefits during the 1990s recovery: Ontario and Alberta.

While the NCB itself appears to be working as intended, higher provincial social assistance benefits are clearly needed to reduce the depth of child poverty.

Table 1 shows trends in the incidence and depth of child poverty at the national level, for 1989, 1993, 1997 and 1998. These years mark the cyclical pre-recession peak, the beginning of the recovery period, and the last year for which data are available. (These data are based on the Statistics Canada post-tax LICO.)

Incidence and Depth of Child Poverty

1989

1993

1997

1998

Low-income Rate (%)

All Children

11.8

15.9

16.3

14.1

Two-parent Families with Children

All

6.3

8.8

9.5

7.3

No Earners

81.1

78.1

72.2

75.7

One Earner

14.3

17

23.8

17.9

Two Earners

3.9

4.7

5.1

3.7

Female Lone-parent Families

All

39.5

41.3

42.3

38.1

No Earner

86.9

76.3

90.3

85.8

One Earner

32.5

31.8

30.6

31.1

Depth of Low Income ($)

Two-parent Families with Children

All

$6,898

$6,852

$7,326

$7,328

No Earners

$8,172

$8,606

$9,181

$10,432

One Earner

$6,647

$7,114

$7,799

$7,179

Two Earners

$6,391

$5,295

$5,822

$4,894

Lone-parent Families

All

$5,648

$5,946

$6,043

$6,194

No Earner

$6,088

$6,047

$6,513

$7,456

One Earner

$5,318

$5,765

$5,307

$4,899

Source: Statistics Canada. Income in Canada (CD-ROM).

Note: Rate and Depth are measured on post-tax LICO, 1992 Base.

We already know that 1998 was not a cyclical peak, since the expansion has continued through 2001. The positive child poverty trends driven by an improving job market almost certainly continued through 1999, 2000 and into this year, and the NCB has become more generous over this period as well. Therefore, good news is still in store. However, the cuts to social assistance benefits in the mid-1990s have not been reversed.

The child poverty rate continued to increase through the early stages of the recovery, peaking at 17.2% in 1996, then falling to 16.3% in 1997, and to 14.1% by 1998. However, the incidence of child poverty in 1998 remained well above its 1989 level. So while the 2000 and 2001 rates will likely reach and may even fall below the 1989 level, and there will have been significant progress since 1993, Canada will have basically marked time over a decade in which we were supposed to abolish child poverty.

As further shown in Table 1, there was a particularly significant decline in poverty from 1997 to 1998 for two-parent families with children with one earner (23.8% to 17.9%), as well as for such families with two earners (5.1% to 3.7%). Fully three of four (75%) two-parent families living in poverty in 1998 had some earnings, up from 71% in 1993. Job creation and the NCB, working in tandem, can plausibly be seen as having had a real impact in 1998. Curiously, the poverty rate among working female lone-parents actually rose from 1997 to 1998, although the change was very small.

The Table also shows changes in the depth of low income. The amount shown is the average gap between the post-tax LICO and the actual average income of a family below the line, that is, the extra amount that would, on average, be needed to move out of low income. (For reference, the post-tax LICO for a two-parent family with two children in a large urban centre was $27,890 in 1998, and $22,392 for a single parent with two children.)

As shown, poor families with children were not only more numerous, they were also significantly poorer in 1998 than in 1989, and poorer than in 1993 (more or less when major social assistance cuts began to take effect in several provinces, and just before new cuts to EI entitlements). The average depth of poverty rose from $6,852 for two-parent families with children in 1993, to $7,326 by 1997, and it rose again in 1998 (though very marginally).

However, the details in the Table make it clear that the depth of low income fell for both two-parent and lone-parent families with earnings from 1997 to 1998, suggesting some positive impacts from more hours and weeks of work and higher employment income, combined with higher NCB cash benefits. The depth of poverty for two-parent families with one earner fell by $600, and by almost $1,000 for such families with two earners. The depth of poverty for female lone-parent families with earnings fell by almost $400 - even below the 1989 level. Meanwhile, the depth of poverty continued to grow from 1997 to 1998 for both family types with no earnings.

An increased depth of low income is closely associated with exclusion from the job market and reliance on social assistance. The NCB and an improving job market have reduced both the incidence of poverty and the depth of poverty for working families with children, as explicitly intended, but the situation of non-working families with children has deteriorated.

Provincial Differences

Tables 2 and 3 present comparable data for three provinces: Alberta, Saskatchewan and Ontario. While low-income data at the provincial level should be interpreted with caution, it is striking to note how well Saskatchewan has done compared to both Alberta and Ontario, the two provinces which led the 1990s economic recovery. The low-income rate for lone parents in Saskatchewan has fallen dramatically, from more than half in 1993, to one in three in 1997, and less than one in five by 1998. The 1998 rate of one in five compares to more than one in three for lone parents in Ontario and Alberta. It is the lowest rate in Canada by far. The rate for two-parent families with children is lower in Saskatchewan than in Alberta, though broadly comparable in the three provinces.

Further, the depth of low income is much less severe in Saskatchewan among lone-parent families with children. On average, Saskatchewan lone-parent families in poverty are about $4,000 better off than those in Alberta, and about $2,000 better off than those in Ontario. In Saskatchewan, two-parent families with children in poverty are about $1,000 better off than in neighbouring Alberta, and about $2,000 better off than those in Ontario. Sample size limits do not allow for a further examination of the depth of poverty between families with earnings and those without earnings.

How can we account for these differences? The fall in the unemployment rate between 1993 and 1998 was more pronounced in Alberta and Ontario than in Saskatchewan, and in 1998, Saskatchewan and Alberta both had comparable unemployment rates of just under 6%, slightly below the Ontario rate of 7%. Saskatchewan's relatively good performance in reducing both the incidence and depth of child poverty among lone-parent families does not appear to be well explained by an especially strong labour market.

Provincial policy differences likely played a role. Table 3 shows total incomes of families on welfare in the three provinces (combining social assistance and federal and provincial benefits and tax credits). Saskatchewan is hardly "generous" in terms of its welfare incomes, which are far below the poverty line and have fallen from 1993 to 1999 because of the impact of inflation on social assistance benefits. However, for both family types, benefits are about comparable to Alberta (despite lower average provincial income), and benefits have been cut much less drastically than those in Ontario.

The major difference may well lie in the fact that Saskatchewan has invested much more in children - outside the social assistance system - than either Alberta or Ontario. In 1998/99, total NCB initiatives in Saskatchewan amounted to $37 Million, much more than the $6 Million invested by Alberta, and proportionately much larger than the $106 Million invested by Ontario (NCB Progress Report, 2000. Table 5). The key Saskatchewan programs include a provincial income supplement and health benefits for low-income working families.

Conclusion

These data suggest that the NCB in combination with the job market is working - as intended - to lower the incidence of poverty and the depth of poverty for working families with children. There can be little doubt that real progress is finally being made on this front, and that more good news is in store.

The case of Saskatchewan suggests that provincial policy supplementing the NCB initiative may be making a real difference to both the incidence and depth of low income, particularly among lone-parent families. However, data at the national level also show that those families with children left behind on social assistance are experiencing deeper low income than before due to continuing cuts to the real value of social assistance benefits.

The major policy conclusions to be drawn are:

that the federal government should, as it has, continue to improve the Canada Child Tax Benefit;

that provincial income supplements and other measures can make a real difference to reducing the incidence and depth of child poverty, in combination with higher incomes for working-poor families; and

that provincial social assistance benefits will have to be significantly improved in order to reduce the depth of poverty among non-working poor families with children.